Welcome to the Fourth Quarter and Full Year Financial Results Conference Call and Webcast for Kindred Biosciences. [Operator Instructions]. It is now my pleasure to turn the call over to KindredBio's CEO and President, Richard Chin. Dr. Chin, please proceed.

Richard Chin

Thank you, operator. Good afternoon and welcome to our 2015 fourth quarter and full year earnings call. Joining me today is the management team from KindredBio, Denise Bevers, our Chief Operating Officer, Steve Sundlof, who has recently been promoted to Chief Scientific Officer and EVP of Regulatory and Quality and Wendy Wee, our VP of Finance.

Before I begin, I should note that our remarks today will include forward-looking statements and that actual results could differ materially from those projected or implied in our forward-looking statements. For a description of important factors that could cause actual results to differ. I refer you to the forward-looking statements in today's press release and a note on forward-looking statements in our SEC filings.

I will begin the call with a general corporate update. Denise will follow with an update on our lead programs. And Wendy will conclude with our fourth quarter and full year 2015 financial highlights.

2015 was an exciting year for KindredBio. During 2015 we announced successful pivotal results for that Zimeta, KIND-012, multiple filings of NADA technical section and major advances across our pipeline including biologics. With regard to Zimeta our IV and oral drug for treating fever in horses will continue to build on our momentum from 2015 and expect to complete all technical sections for IV formulation by the end of Q1, 2016.

We look forward to our first product to approval by end of 2016 or early 2017 and in a cost efficient manner we will be initiating certain prelaunch activities including presence at key think scientific conferences and recruiting experienced equine personnel. We have also implemented NetSuite, an ERP platform for business which encompasses CRM and e-commerce. We look forward to and are preparing to become a revenue generating company.

In addition to Zimeta we reported several positive pilot studies in even 015, these include KIND-010 a transdermal product for cats suffering from weight loss which is a novel formulation for major unmet medical and feline EPO for anemia in cats. For all the success we had in 2015 as I just described. We were disappointed with the results at SentiKind. Our product for post- osteoarthritis in dogs.

Now the mark of good drug development is learning from setbacks and we have learned lessons which we will apply to other programs. First SentiKind utilize the subjective endpoint. Going forward we will of avoid subjective endpoints. Accordingly the endpoint for Zimeta is fever. The endpoint for KIND-010 is weight gain and endpoint for feline EPO expected to be red blood cell count.

Second, we did not perform a pilot study for SentiKind. As a general policy we will conduct pilot studies for our future program. Now as we announce before going forward we will focus on the equine molecules and biologic for dogs and cats. On the equine side we’re developing a molecule for equine gastric ulcers and a molecule for equine metabolic syndrome which is similar to type 2 diabetes people. Most of these are very common conditions in horses and both represent significant unmet medical needs. On the biologic side we have an exciting new scaffold technology, KIND body which we deliver will allow us to develop five specific molecules, a molecule that combine to target at the same time and to leapfrog current antibodies.

And we have a full pipeline of atopic dermatitis and cancer antibodies which we’re developing including antibodies against IL4RA, IL17A, IL31, CD20 and IGE. I'm pleased to report that we have completed the physical build out of our GMP biologics manufacturing plant and are in the process of commissioning it. This will be a small scale single use technology based plant. We believe it will be one of the most advanced biologics manufacturing plant in the world and one of the first ones dedicated to veterinary biologics because of its design using single use technology we expect to be very efficient even for multiple batches.

Having our own plant we believe will allow us to dense our products more quickly and achieve lower cost of goods compared to some of our competitors. Before I turn it over to Denise for additional details on our lead programs, I would like to make a quick comment regarding our financials. As of December 31, 2015 we had cash and cash equivalents of $77.6 million. We have been and will continue to be judicious about our spending and we believe that our cash on hand at the end of 2015 is more than sufficient to allow us to grow from a development company, to a company with substantial revenues.

Thank you for your continued support. I will now turn it over to Denise.

Denise Bevers

Thank you, Richard. 2015 has certainly been a productive year for KindredBio. We ended the year with a positive pivotal field study for Zimeta, our IV formulation of dipyrone for the treatment of fever in horses and I mentioned this first not simply because it was a positive study but because it really underscores our ability to do lean and successful drug development. From the time we initiated our very first clinical study site in this multi-center randomized blinded placebo control pivotal study to enrolling a 138 horses to submitting our effectiveness technical section to the FDA took us less than 12 months. It was conducted ahead of schedule and on budget. We have also submitted the chemical manufacturing and control or CMC technical section of the new animal drug application to FDA and have successfully completed the target animal safety study.

The remaining technical sections of the NADA for Zimeta are planned for submission by the end of the first quarter of this year. As Richard mentioned we have ramped up our commercial planning in anticipation of the approval of Zimeta for a launch in late 2016 or early 2017. In 2015 we also completed pilot studies for KIND-010 for the management of weight loss in cats with positive results. I'm pleased to note that we are more than 50% enrolled in our pivotal field study which is also ahead of schedule. We expect to report results of this pivotal study midyear this year. We are working on the in-life portion of the target animal safety study and are preparing our CMC technical section of the new animal drug application for submission. We're very pleased with the progress we have made on our feline erythropoietin program for the control of non-regenerative anemia in cats. We saw an effectiveness signal in our initial laboratory studies as evidenced by increased [indiscernible] site formation. As a result, we've initiated our pilot field efficacy study and as Richard mentioned we are finalizing our GMP manufacturing activities and anticipate proceeding to GMP manufacturing for this product in 2016.

We're excited about our pipeline for equine and the initiation of formulation development for KIND-014 our program for equine gastric ulcers syndrome forces and for KIND-015 our program for metabolic syndrome in horses. Following the completion of dose ranging and palatability studies we plan to initiate pilot field efficacy studies for KIND-014 in the second quarter of this year and for KIND-015 in the second half of this year.

As Richard discussed we’re making great progress in our development of biologics, our antibodies against cytokines and checkpoint inhibitors are progressing on track and initial pilot studies for some of the antibodies or anticipate in 2016. We have also completed the initial characterization of the KIND bodies and the results are promising.

With that I will now turn the call over to Wendy to update you on our 2015 financials.

Wendy Wee

Thank you, Denise. For the quarter ended December 31, 2015 KindredBio reported a net loss of 6.4 million or $0.32 per share compared to a net loss of 6.8 million or $0.34 per share for the same period in 2014. Research and Development expenses for the fourth quarter of 2015 totaled 4.6 million compared to 4.8 million for the same period in 2014. General and administrative expenses for the fourth quarter of 2015 were 1.9 million compared to 2 million for the same period in 2014. For the year ended December 31, 2015 KindredBio reported a net loss of 27.1 million or a $1.37 per share versus a net loss of 27.1 million or a $1.44 per share for the same period in 2014.

Research and development expenses for the year ended December 31, 2015 were 19.4 million compared to 18.7 million in 2014. Stock based compensation expense related to research and development was 1.9 million versus 1.5 million in 2014. The 700,000 year-over-year increase in research and development expenses was primarily due to higher payroll and related expenses as a result of increased headcount, additional expenses associated with advancing biologics programs and higher stock based compensation expense. The increase in expense was offset in part by lower field trials and material cost at the development of CereKin and AtoKin were discontinued and the enrollment for the SentiKind program was completed in the second quarter of 2015. Consulting expenses were also lower.

General and administrative expenses for the year ended December 31, 2015 were $7.9 million compared to $8.5 million in 2014. General and administrative stock-based compensation expense was $2.3 million in 2015 versus $3.0 million in 2014. The $600,000 decrease in general and administrative expenses was related to lower stock-based compensation expense, consulting and professional fees, as well as marketing and corporate expenses. The decrease was offset in part by higher payroll and related expenses due to increased headcount as we continue to build our corporate infrastructure and other general business expenses.

At December 31, 2015, KindredBio had $77.6 million in cash, cash equivalents and investments. Net cash used in operating activities for 2015 was approximately $22.8 million. We also invested approximately $1.0 million in capital expenditures for the build-out of our GMP biologics manufacturing facility.

With respect to spending in 2016, we plan to focus on our core pipeline and programs. Accordingly, for 2016 we expect to spend between $24 million and $26 million, excluding the impact of stock-based compensation expense and the impact of acquisitions, if any. Our anticipated expenditures for 2016 include the development of the necessary regulatory and quality processes as we near the filing of registration of our second lead product candidate, KIND-010, and preparing for the commercial launch of Zimeta. Additionally, we are addressing the necessary manufacturing requirements for possible commercialization in the following years.

With that I will turn the call back over to Richard.

Richard Chin

Thank you, Wendy. Operator we’re ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. And our first question comes from Brandon Folkes from Guggenheim. Your line is now open.

Brandon Folkes

Wondering if you could just give us more color around the timing of data and the development timeline for KIND-014 and 015 and perhaps if you can just help us think through the market potential for these two drugs. Thanks very much.

Denise Bevers

For KIND-014 and KIND-015 we intend to get into pilot studies this year in 2016, so we’re working on optimizing our formulation and then depending on the results of the pilot studies we will very rapidly initiate pivotal studies. So we haven't disclosed any more granularities beyond that at this time but we will certainly on a quarterly if not more frequently basis give updates on that.

Richard Chin

And with the market potential, in general we don’t give guidance however what we do say is that most products in the [indiscernible] animal space saw between $10 million and $100 million and based on our preliminary market research we think both of these products will fall well within that range. I will say both of these are very, very common conditions in horses.

Operator

Our next question comes from [indiscernible] from Craig Hallum. Your line is now open.

Unidentified Analyst

You mentioned acquisitions in your operating expense guidance excludes acquisitions. In prior calls I think you’ve mentioned that you’re looking for some tuck-ins, I'm wondering if you could maybe give us some updated thoughts that you may in terms of acquisitions if that's an important part of your strategy going forward or is it just kind of obligatory language that you put in the press release?

Richard Chin

So we're still looking for acquisitions. The focus of our search has changed a bit and we're now focusing on equine products. We will be launching our first product soon into the equine market and obviously additional products to amortize the cost of the commercial infrastructure would be welcome. So at the right price we’re still very interested in acquisitions. But we’re very focused on our search.

Unidentified Analyst

And my next question is on the commercialization of Zimeta. With late 2016 early 2017 proposed or hopeful launch, wonder if you could kind of talk about the commercialization buildup that may be necessary going into that and what your thoughts are and when you may start to ramp that.

Denise Bevers

Sure. Yes, so we've actually started many of the commercial activities and with this launch in particular you know we'll be very judicious about it as we said in the past what is so attractive to us about equine is the need for a small sales force somewhere between 8 and 12 people which we would ramp up accordingly. So in the meantime, we have been doing a lot of thought leader outreach and certainly working on our manufacturing and packaging and logistics and then moving with standard sort of scientific interactions at this point with all of the thought leaders in equine. So our plan will be to build the commercial infrastructure, the operational side as we lead into one quarter before launching and then we will bring on the sales reps at that point.

Unidentified Analyst

And are you planning on using some of the larger equine distributors out there or going direct or are these just these 8 to 12 people, would they be more sales rep consultants or how should we think about that?

Denise Bevers

Yes we will bring the sales reps internal. We've already had quite a bit of unsolicited in reach if you will from very talented sales reps. We will certainly partner with distributors to start and we've already had discussions with most of the major distributors in that regard.

Unidentified Analyst

And then my last question is regarding KIND-010, in the transdermal approach there. Can you help me understand when I think about cats I think it's a little bit difficult to have a transdermal approach but help me understand a little bit about kind of the delivery mechanism and how that kind of works if you don't mind?

Richard Chin

Sure. So if you have owned a cat you may know that [indiscernible] a cat has to be undertaken lightly, you can count on getting several scratches. Most owners prefer not to give oral drug to cats if they can avoid it. Now transdermal ointments in cats are difficult to create but if you can create they are very well received by owners and what you do is you put them on the year of the cat. So if you have a formulation that is well absorbed like the one that we have, it's actually the most convenient way of administrating it and we think this is going to be a major advantage over other drugs for this indication.

Operator

[Operator Instructions]. And I'm showing no additional questions from our phone line. I would now like to turn the conference back over to Dr. Chin for any closing remarks.

Richard Chin

Thank you, Operator. I'd like to take a moment to thank KindredBio team for all of its hard work and dedication and importantly to thank all of you who have called in today for your support and interest KindredBio. We hope we have demonstrated our deep commitment to the future of veterinary drug development and look forward to successes to come. Thank you.

Operator

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.

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